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Thursday, December 22, 2016

Yes, Under the exchange control law, NRIs are allowed to buy property in India except for agricultrual land, farm house or any plantation property. This means NRIs can buy flats, bungalows, residential plots, and landed properties, both freehold and on the lease. NRIs are also allowed to buy commercial properties e.g. shops in India. They can also purchase a residential house which is ready or possession, under construction or available on resale. NRIs can even take NRI home loans for the purchase of a plot of land allotted by a society/development authority.
Btw, here an NRI refers to both NRI and PIO i.e. an Indian citizen residing in abroad and a person of Indian origin, who is not an Indian citizen and doesn't hold an Indian passport. This is because the determination of residential status under exchange control law is different from income tax law.

As per Income tax law and as per FEMA definition, if an Indian citizen stays more than 182 days outside India in a given financial year then he becomes an NRI, but there are some special cases as well. Though, You can easily find the residential status of any Indian living abroad using this NRI residential status flow chart.

Not only NRIs can buy properties in India, they can also take NRI home loans from both public and private sector banks e.g. ICICI, HDFC, SBI, Punjab National Bank, Bank of Baroda, Bank Of India, Axis Bank, DBS Bank, YESBank, Kotak Bank, Federal Bank and so on. They can also take NRI home loans for Non-banking Financial companies (NBFC) e.g. LIC housing finance, Indiabulls, Reliance etc. They are also eligible for income tax benefits which resident Indians are entitled to buying property by taking home loans e.g.

1) The interest on NRI home loan which has been taken for purchase, construction, or repair of a residential property (flat, bungalow, or a landed house) in India is allowed as a tax deduction while computing the income from the property for the relevant financial year.

2) The limit for this deduction is Rs 2 lakh INR for a self-occupied property. However, in the case of let-out property, interest payable on housing loan is deductible from rental income without any limit.

3) Apart from this, the repayment of principal amount against NRI housing loan is also eligible for tax deduction from the gross total income, btw the maximum deduction that can be claimed for repayment of the loan is Rs 1.5 lakh INR, you cannot claim more than that.

So, if you have some additional income in India e.g. from rental income, interest earned on NRO bank fixed deposit, dividend from stock market investment or some sort of royalty, you can use these tax deduction benefit by taking a home loan for your property purchase in India.

Rules for NRIs buying residential properties in India

There is also some specific rules for NRIs buying residential properties in India, particularly with respect to funding and repaying installments of home loans e.g. NRIs can repay their home loan EMIs by following ways:

1) Using Remittance from abroad, you can send money to your NRE saving account using remittance services like Money2India, Remit2India or SBI's e-portal. If you are sending money from Singapore, you can check here for best money transfer services.

2) You can also pay EMI from any deposit accounts maintained validly in India including Non-resident (Ordinary accounts), also known as NRO accounts.

3) NRIs are also allowed to repay EMIs of their home loans by using rental income derived from the property by specified close relatives

There are many more rules and tax implications related to NRI buying properties in India, taking home loans, selling properties within 3 years of purchase and short term and long term capital gain tax when you sell property in India, which we'll see in coming articles.

In short, Yes, NRIs can buy properties in India but they can only buy residential properties e.g. flat, bungalows or landed houses. They cannot buy farm house, agricultural land or any plantation property. They are also free to buy any under-construction or resale property of their choice.

Non Resident Indians can even fund their property purchase by taking NRI home loans. Almost all Indian public and private sector banks e.g. HDFC, ICICI, Axis Bank, SBI, Bank of Baroda, Federal bank are offering NRI home loans with a very attractive rate. I'll write more about a couple of things which you should consider before taking an NRI home loan in next article.

Hello Janvi Paul..!! Thanks for sharing such an informative blog. Great information. NRI's can also take help from trusted and expirneced real estate agents. As we are also dealing in NRI real estate investment. We helped many NRIs to get their properties according to their requirements. Our team works according to indian property laws. If anyone want to contact us then they can visit http://www.spaciorealtors.com/services/nri-property-services

Hello Anonymous, Yes, a resident Indian can borrow loan from NRIs but only with close relatives with some attached conditions. You can to borrow up to US$ 250,000 or its equivalent in foreign exchange on a repatriable basis by an individual Resident from his close relatives who are NRIs, subject to following condition –The loan is free of interest The minimum maturity period of the loan is 1 year. The amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR account of the non-resident lender.

A resident can also borrow in rupees on non-repatriation basis from an NRI or PIO subject to:The term of the loan shall not exceed 3 years. The loan has to be utilised for meeting the borrower’s personal requirement or for his business purposes and under no circumstances be used for relending or for investment in shares, securities or immovable property. The rate of interest shall not exceed 2% over the bank rate prevailing on the date of availing of loan.

You can read more about here https://www.mea.gov.in/images/pdf/loans-and-overdrafts.pdf